Australian report: Queensland's vulnerability to rising oil prices

Preface

In May 2005 the Honourable Peter Beattie MP, Premier and Minister for Trade established the Queensland Oil Vulnerability Taskforce (the Taskforce). The terms of reference and membership of the Taskforce are set out in Attachment 1. The Taskforce was asked to report on Queensland’s vulnerability to rising world oil prices driven by supply constraints including, but not limited to, the potential peaking of world oil supplies caused by natural field decline (peak oil).

The Taskforce was chaired by Andrew McNamara MP, Member for Hervey Bay, assisted by Ms Rachel Nolan MP, Member for Ipswich.

The Taskforce’s report methodology included desk-top review of published papers on world oil supply issues, consideration of detailed Australian data on proven and anticipated reserves of conventional and non-conventional energy sources, and an overview of current and emerging energy technologies. The primary focus of the Taskforce was to present the most likely time frame for peak oil, to assess its impact on the mining, transport and primary industry sectors and then recommend options to minimise the impact on Queensland of peak oil.

The recommendations in the report of the Taskforce are preliminary and more detailed analysis including detailed modelling of the downstream impacts and substitution effects of the various proven and evolving alternative energy technologies will be a necessary next step.

Executive Summary

This Queensland Oil Vulnerability Taskforce (the Taskforce) was assembled to address concerns that future world supplies of oil for energy may diminish, to the detriment of Queensland’s sustainable future, and that “peak oil” may be a world-wide phenomenon.

Peak oil refers to the point when production in any oil well, field or region begins to decline. Typically, this point is reached when between one-third and one-half of the oil in a reserve has been extracted. The decline is the inevitable result of the loss of pressure in the oil reserve and despite the advanced drilling and extraction techniques now in use, is irreversible once passed.

The Taskforce considered the issue of peak oil from a Queensland perspective.

The Taskforce considered the question of whether and when world production of oil will peak. The range of creditable predictions for a world peak oil situation run from 2005 to 2040, with the mean and standard deviations of all academic and industry predictions being 2013, ± 7.

The Taskforce concludes that the overwhelming evidence is that world oil production will peak within the next 10 years. It is noted that Australian oil production (but not necessarily, natural gas) has already peaked, as has that of the rest of the world, excluding the former Soviet Union and some Middle East OPEC members.

The Taskforce also notes that the world oil market is becoming increasingly supplied from politically and/or socially unstable areas, such as from many OPEC and Middle East nations. This means that, regardless of the global peak oil issue, the risks of supply disruptions are rising.

These two factors mean that oil prices could rise substantially at some point(s) in the future, especially given the continuing growth in world demand for oil and its products. The Taskforce considers this to be a major risk, with impacts arising not only for transport but for many key parts of Queensland industry and the community.

In addition, it is clear from developments internationally that energy security is a key emerging issue. The European Union, United States of America and China have all been moving in the past 2 years to invest in new domestic and external sources of energy supply.

The Taskforce considered Queensland’s and Australia’s reserves of crude oil, as well as supplies of alternative sources of liquid fuels including natural gas, coal seam methane, coal and oil shale. It noted the very substantial environmental and infrastructure costs inherent in seeking to rely on these resources to address Australia’s growing shortfall in liquid fuels.

The Taskforce concludes that Queensland’s vulnerability to peaking of world oil supplies, and to world supply disruptions, is particularly acute given our oil supply and demand trends, as well as our regionally distributed population and industrial base.

The potential impacts of low, medium and high price paths for oil on the mining, transport (including some industry, community and regional issues) and primary industry sectors are considered in the sectoral papers in this report. A number of significant vulnerabilities to any future high oil price conditions are identified.

The Taskforce concludes that the alternative energy sources currently available have a combination of problems including volume constraints, substitution impacts, infrastructure costs and substantially higher costs than existing oil-based liquid fuel supplies.

However it is also noted that some of these difficulties could be eased in the future as development proceeds and technologies improve – leading to possibly strong cost economies for some sources with increasing scale of operations. Accordingly, the Taskforce recommends that a prudent risk mitigation approach requires a mix of initiatives such as reduction in consumption of liquid fossil fuels, encouraging the development and use of alternative fuels, technologies and strategies, and preparation for demographic and regional changes, as Queenslanders change travel, work and living habits in response to rising fuel prices.

In preparing this report, the Taskforce notes that there is no area of government that currently develops comprehensive policy for long term liquid fuel security. Responsibility falls between the legislative role of the Department of Mines and Energy in an emergency, pursuant to the Liquid Fuel Supply Act 1984 (Qld) and the regulatory and policy roles of various government departments including Premier and Cabinet, Treasury, State Development and Infrastructure, Transport, Mines and Energy, Primary Industries and Fisheries, Local Government and Planning, and Natural Resources and Water.

The Taskforce recommends that a high level, whole of Government committee be established to develop a Queensland Oil Vulnerability Mitigation Strategy and Action Plan.

Editorial Notes: The complete report is available online as a 158-page PDF. On the page, it is identified as the "McNamara Report": www.epa.qld.gov.au/link/?id=3777. Even though the report was apparently completed in April, it was not released to the public until today. Also see: Media release for the report. -BA

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